What is a betting exchange?

Betting on the Smarkets exchange offers you an exciting and fairer way to bet on sports, politics and other events. The fairness of the Smarkets exchange is that most markets are close to 100% - known as a fair book - whereas bookmakers have a builtin over-round, thus resulting in tighter prices and less value.

As an example an eight runner horse race will be very close to the previously mentioned 100% on the Smarkets exchange, but with a traditional bookmaker, their inbuilt over-round will have the race somewhere around 112%. This gives the bookmakers' their profit margin and also gives bettors less overall value.

A betting exchange is a platform for bettors to trade on the outcome of certain events. It differs by allowing bettors to bet against each other rather than a bookmaker - so bettors can act as a bookmaker by setting odds for an event, or the customer by backing the odds set by other users on the exchange.

The superior technology of a betting exchange like Smarkets allows users to instantly identify the odds they are looking for in order to place the bets they want. Importantly, the prices on a betting exchange are determined by the wisdom of the crowds, rather than being determined by a bookmaker.

How does a betting exchange work?

If you are familiar with traditional bookmakers, a betting exchange can appear daunting. But once you appreciate the differences, and understand how they work, there are plenty of opportunities to trade and take advantage of the increased value - whether it’s from getting better odds, or locking in a profit before the result is even known.

The betting exchange simply provides the platform and pairs bettors against each other for bets to take place. The exchange takes a commission for this service - Smarkets charge an industry-low 2% commission on net market profit only.

Instead of being limited to the odds set by bookies, and only having an option to back the result, the betting exchange facilitates users to go head-to-head against each other and create their own markets - one backing and one laying. For instance if you think the football team you want to back are going to drift to a bigger price due to team news, you can put a request up and set a higher price than is currently available and another user may think you are wrong about your estimation and be prepared to match your bet at the bigger price.

This simple example explains how a betting exchange works.

You and a friend are watching Djokovic vs. Murray. You believe Djokovic will win, while your friend disagrees and believes Murray will claim victory. He offers you odds of 2.00 (evens) that Djokovic won’t win.

You both agree to bet £20. If Djokovic wins, your friend pays you £20. But if Murray wins, you lose and pay up the £20 to your friend.

In essence this is how a betting exchange works, matching bettors with differing opinions on a given result who, via the exchange, make an agreement on both the stake and the odds.

The ability to both back and lay an outcome is one of the main appeals of the betting exchange model, the flexibility for users to act as either bettor or ‘bookmaker’.

It’s similar to a stock exchange, with traders buying (backing) and selling (laying) shares on event outcomes rather than commodities.

What is back betting?

When placing a back bet you are betting for an outcome to happen - for example betting on Real Madrid to beat Roma. You only win the bet if Real Madrid win the match.

To place a back bet on Smarkets simply select the odds in the green box as displayed below. In doing so, the odds currently in the box will be selected, just like they are with a bookmaker.

Here you are backing Real Madrid to win at odds of 1.31 with a stake of £20. Once you confirm your stake, your bet will be matched.

If Real Madrid win, you will claim £6.20 from your opposing exchange user and get your £20 stake back - as a winning bet you will pay commission on your winnings, this article explains how to calculate commission. If they lose or draw you lose your £20 stake to the counterparty just as you would with a pre-match bet with a bookmaker.

If you want to back at higher odds, you can request the odds by adjusting the odds to your liking. Once you have requested the odds, you will have to wait for another exchange user to 'lay' those odds - where they will essentially be playing the role of bookmaker and offering you those odds.

If another user is willing to accept and lay your odds, your bet will have been matched. If not, your bet will be unmatched and your £20 stake will be returned.

What is lay betting?

When placing a lay bet you are betting for an outcome not to happen and playing the role of the bookmaker - for example betting that Real Madrid will not beat Roma.

To place a lay bet on Smarkets simply select the odds in the blue box as displayed below. In doing so, the odds currently in the box will be selected. Your bet against Real Madrid will therefore win if the result is either a Roma win or a draw.

Like back betting, the current lay odds will automatically be selected, but you can alter these to your liking in the hope another user backs your odds.

On Smarkets under default settings, you enter a ‘back stake’ and are presented with a return and a liability.

Your ‘back stake’ is the amount you stand to win if your bet is successful, so £20, while the ‘liability’ is the amount you stand to lose if your bet is unsuccessful, so £6.40.

How does a betting exchange differ to a bookmaker?

As a peer-to-peer platform, a betting exchange acts similar to a stock exchange, with users buying (backing) and selling (laying) odds on particular outcomes.

There are six key differences between a betting exchange and a bookmaker:

Bet both sides of the market

As mentioned a betting exchange gives the user the ability to both 'back' and 'lay' an outcome. This allows users to trade positions much like a broker would the stock exchange, assessing the market as the event is live in-play, while at a bookmaker you can only back.

Best odds

When betting with a bookmaker you can only bet on the odds they offer, which includes their margin - which can be as high as 20% - meaning they price markets in their favour with unfair odds - learn how to calculate betting margins and understand how they reduce your chance of being profitable.

In comparison a betting exchange offers more competitive odds, due to its nature as an intermediary peer-to-peer platform. Simply the market is driven by supply and demand, which results in better odds compared to those of a bookmaker.

As an example, the video below shows how you would be 32% more profitable from a £10 bet on every winner at the 2017 Cheltenham Festival with Smarkets compared to a bookmaker.

Guarantee a profit

Given the exchange allows you to back and lay, you can trade out - place a bet on the opposite outcome to a bet you have already placed.

You can do this to guarantee a profit, reduce your exposure or cancel a previously matched bet on the same market.

While bet restrictions are common with bookmakers, they vary across the industry depending on your betting history and the market you’re betting on.

However, there are no specific betting limits on an exchange, instead the amount you can bet is determined by the liquidity - the amount available to bet in a particular market.

Winners welcome

Given betting exchanges don’t care if you win or lose, they actively welcome winning players, meaning you won’t get banned, unlike at bookmakers, for being successful.

Commission

Commission is the fee Smarkets and other betting exchanges charge to facilitate peer-to-peer betting on an exchange.

Smarkets charge a flat commission rate of 2% on your net winnings for any given market. If you make a net loss on a market, you do not pay commission. The 2% charged is an industry low.

Unlike a bookmaker Smarkets do not build a margin into their odds. Therefore, even when factoring commission into the odds, Smarkets are often best priced across the market.

Apply this to betting

Betting exchanges have disrupted the betting industry and are the preferred choice for educated bettors.

Now you understand what a betting exchange is and how it works, you’re in the best place to take advantage of the exciting opportunities they present, and the best odds online - which is what Smarkets offer with our industry-low 2% commission.